Housing Speculation and Entrepreneurship

Abstract

We document a speculation channel through which house market booms negatively affect entrepreneurship but increase entrepreneurial quality by screening off low-type entrepreneurs. To address endogeneity concerns, we exploit plausibly exogenous variation in house prices generated by staggered and unintended policy spillovers in China. We find house market speculation triggered by house booms crowds out entrepreneurship. Reduced labor supply, reduced capital supply, and heightened entry costs do not appear to explain our main findings. The negative effect is more driven by house price changes rather than price levels, and exhibits in the OECD countries as well. Our paper complements the well-documented collateral channel by offering nuanced evidence on a previously under-explored consequence of house market booms on entrepreneurship.

Keywords: Housing speculation, entrepreneurship, house purchase restriction policy JEL code: G28

JEL Classification: G28, G51, L26, D84